Written by: Haomin Li
Time to get a bit more mathy! This is what I was thinking after the end of my second and final sub-honors year at St Andrews in summer 2020. After the lovely introductory experience in London back in the summer of 2019, I decided to take a further step to get to know more about the technical aspects of the art market and the financial investment activities in art. This was the reason behind my choosing the 6-week online course, ‘Art Market Economics’, offered by Christie’s Education.
Founded by Christie’s in London in 1978, Christie’s Education is an educational branch still affiliated to and fully owned by the internationally-known top-tier auction house. Besides its regular graduate and continuing education that Christie’s Education offers, it also provides a good variety of relatively shorter and less commitment-demanding online courses in the fields of art history and art business. As far as I know, a few short courses that we are able to take online, including the ‘Art Market Economics’ course that I took in summer 2020, are also provided free of charge for the employees of Christie’s if they ever need an introduction to the fundaments of the art market. This is really a reassurance in many senses — to begin with, you do not need to feel that you have to know all about the art market before you start working in a gallery or an auction house. Everyone is entering this niche market from either the field of art history, criticism, and conservation or economics and finance. In short, nearly nobody (except for those born with silver spoons in their mouths) has the full picture of the art market before they actually enter the game. Moreover, you can be rest assured that Christie’s, along with presumably other companies within the art market, takes very good care of their employees. Indeed, from what I have seen from the auction houses and galleries in London, employees are very happy about their jobs there! Having hopefully soothed a few worried souls, I will resume the introduction to ‘Art Market Economics’.
Obviously, due to the nature of online courses, the ‘Art Market Economics’ course is not able to provide such a variety of practical experiences as the ‘Art and its Markets’ programme. However, the online programme is still doing its best to connect us to art world professionals by providing us with exclusive interviews at the end of each week’s classes. The interviewees include one of Christie’s very own Post War and Contemporary art senior specialists, Christie’s Deputy CEO and Global President, one of the earliest Western collectors of Chinese art (who was also formerly the Swiss ambassador to People’s Republic of China), and professionals working in the field of art advisory & finance. With such a variety of interviewees, these interviews are perfectly capable to provide learners with a few insights into a good many industries within the all-encompassing ‘art world’ or ‘art market’.
A List of Interviewees
Compared to ‘Art and its Markets’ offered by Sotheby’s Institute of Art, Christie’s Education’s ‘Art Market Economics’ focusses more on the technical aspects of the art market’s mechanism and those of the financial manoeuvres involving artworks. After a brief 2-week overview of the art market’s history and structure, the rest of the course is dedicated to the economics, finance, legal regulations, and e-commerce related to the art market. The ‘economics’ part is, very frankly, the introductory chapter of every textbook on economics, which provides a very clear overview of the laws of supply and demand, elasticities, the Engel Curve, and the Veblen Curve. The programme also deals with socio-economic issues that are specific to the art market such as the price determinants and valuation of artworks as well as the superstar system by which the entire art market across the world operates. In the ‘economics’ part comes the most useful formula for valuing artworks: Price = f (Explainable Characteristics) + UP (Unexplained Premium). Frankly, the price of an artwork is affected by several explainable characteristics — the artist’s reputation, the work’s subject matter, size, medium, date, recognisability — and some more metaphysical, unexplained factors such as the buyer’s subjective, emotional, irrational, and therefore unquantifiable psychic process.
Right after the ‘economics’ part comes the even more interesting section of ‘finance’. In this section, the course introduces different types of price indices and financial parameters by which to measure the investment returns of art. These technical tools are, of course, very helpful; however, I am focussing more on introducing the underlying logic of art investment in this article, so I will save the discussion of those technical details perhaps for another time. After establishing a clear definition of investment returns, the course emphasises the differences between investments in art and other more conventional financial investments — investments in art provide investors with an extra psychic return (especially during time periods when art underperforms other financial indices). It is obvious that owning an artwork provides the owner with aesthetic enjoyment, but this aesthetic enjoyment cannot fully account for the psychic return. Actually, this psychic return largely comes from ownership itself. The very phenomenon of collectors’ fanatically seeking after originals rather than copies further testifies to this theory. A simple thought experiment can help clarify this ownership-induced psychic return. In theory, the consumption of copies should provide the same psychic return as the consumption of originals; however, in reality, it clearly does not, because this psychic return depends on the status and prestige of owning an original artwork. We can now see that art is, in fact, an exceptional investment category, as artworks are both consumer durables and capital assets, which can simultaneously offer collectors aesthetic enjoyment, the enjoyment of owning something precious, as well as long-term monetary returns.
Speaking of monetary returns which investors expect in all sorts of financial investment activities, it is important to remember that returns and risks are two sides of the same coin in the realm of investment (and in almost every other realm I can think of). The course focusses on three types of risks that confront artworks: physical risks, some artwork-specific risks, and price risks. Straightforward to understand, physical risks are the primary concerns that artworks are facing, as a great many of artworks are unique and therefore irreplaceable. Artwork-specific risks include those involving a particular artwork’s provenance and authenticity. This type of risks is more elusive, as information regarding provenance and authenticity can be difficult to access in the opaque art market, and, even if accurate information were provided, mistakes still cannot be entirely avoided in this field. The third type of risk, price risk, is readily understandable and common to many kinds of investment. It basically refers to the existent possibility that the price of the investment goods may fall in the future, and art is not exempt from this possibility. In fact, art can be much riskier than other types of investment goods, because the liquidity of art asset is lower and the holding cost is significant. Moreover, while the price of other kinds of investment goods may fall considerably, artworks risk being burnt at resales (not literally burnt, it means ‘unsold’, as mentioned in my last article). From here, the course continues to discuss how to diversify and consequently lower investment risks by establishing a diverse investment portfolio. The underlying logic behind a diverse art investment portfolio is that overwhelmingly collecting a single type or closely associated types of artworks can be riskier than investing in a more diverse range of artworks. Let’s use an example to clarify this concept. Say, John Doe loves Impressionist artworks and fills his entire collection with Monet and Pissarro, but, one day, the taste and market demand for this type of artworks suddenly vaporises… If that ever happened, the worth of John Doe’s impressive Impressionist collection would impressively dive overnight. However, if John Doe invested in a wider and more diverse range of artworks, which includes, say, Chinese antiquities, Old Masters, contemporary African art, and also his beloved Impressionist art, he would only lost a relatively less significant portion of his entire portfolio if the price of Impressionist works dropped. As we have discussed in this paragraph, art is a particularly complex and risky type of investment; therefore, we can now understand the crucial role that an art advisor plays in the transactions and collections of artworks.
A figurative representation of ‘what is diversification’
After the section of ‘finance’, the course continues to introduce a few important legal regulations pertinent to art collecting and governmental taxes and subsidies on art. This is a detailed section with many specific regulations, taxes, and laws carefully unpacked and analysed. For this reason, I would recommend you to actually listen to the lectures delivered by the course convener, Dr. Clare McAndrew. Afterwards, in the final week, the course looks at the newly emerging online sales and the art market’s multifaceted socio-economic and cultural impacts on society as a well designed ending.
The course’s workload is not intense at all — if you would like to receive a completion badge at the end of the course, you just have to complete a quiz every week (6 quizzes in total). Each quiz consists of less than 10 questions that you can totally answer with ease if you take good notes. Although the workload is not intense and the quiz is not very challenging, you will really gain a huge amount of knowledge about the art market through this course if you pay enough attention to the lectures. The course also has a unique advantage — when you finish the course content in six weeks, the course materials are still available for you to rewatch for half a year! The course’s only downside is common to virtually all online courses — it does not provide you opportunities to interact personally with industry professionals. The cost of the course is $1,500, which is not exactly a huge amount of money but can still be quite burdensome if your currency is weaker than dollar (which is my case), but the knowledge you will gain is absolutely worth it. I would 8.5/10 recommend art lovers to take this course.
For further information and to enroll, here is the registration link: https://www.christies.edu/online/courses/continuing-education/online-courses/art-market-economics?sc_lang=en.